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IMPLICATION OF THE 7th FOMC MEETING OF 2022

Harvest Global Markets :

The FOMC’s 7th meeting of 2022, declared a fourth straight super-sized rate increase of 75 bps to curb the soaring inflation, not only this but Fed Chair also indicated that the US interest rates might peak at a higher level than expected in the medium term. Considering the by-term elections next week, the progressive Republicans are increasingly criticizing Fed Chair Jerome Powell for potentially putting jobs at risk as a result of the restrictive actions, despite Powell’s assurances that the central bank will maintain raising rates until inflation shows clear signs of slowing.The aggressive interest rate increases have already resulted in increased mortgage rates and a sharp drop in house sales. Businesses have reduced long-term investments that might fuel future development while wage growth has halted.

The Market struggled to interpret the central bank’s stance, with stocks jumping right after the statement was released, and then sinking after Powell warned in his press conference that rates might top out at a higher “terminal” level which means the Fed intends to further push the interest rates to ensure price stability. Consumer prices has accelerated across a wide range of products and services, according to data released since September, suggesting underlying inflationary pressures are becoming more entrenched.

 

The Fed Chair highlighted that the labor market is still out of balance -with significant wage growth and rebounding job vacancies, the labor market continues to be extremely tight. But even with raw material prices falling and demand for goods slowing, manufacturing is only a small part of the economy, meaning that the inflation fight will remain a long slog. The contraction in the economy is not showing any signs of softening labor market as expected.

 

In the medium term, considering the current economic scenario in the US investors anticipate a consistent hawkish by the FED implying a global strain for other major part of the world.

 

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